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Lehman Bros. affirms Strong Buy rating for ECI

Analyst Steven Levy sets price target 143% above market, says company is advancing in the right direction

Lehman Brothers (NYSE:LEH) affirmed a Strong Buy rating for ECI Telecom (Nasdaq:ECIL) and set a 12-month price target at $10, 143% above the market, after the telecoms-equipment maker released its third-quarter results.

Analyst Steven Levy deems ECI shares "one of the most undervalued in the communications technology arena". Despite the gloom and doom in the telecoms equipment market, ECI forms an extremely attractive investment opportunity, he concludes. He predicts that the company, which is evincing stabilizing consolidated revenues, should reach profitability in the fourth quarter of 2002. Its cash flow is also advancing in the right direction.

Levy's revenue and loss forecasts have been adjusted to include only the activity of ECI's five business units plus ECtel (Nasdaq:ECTX) (70%), without the Business Systems division. The ECI group sold its systems unit to Ron Bergman and Africa Israel Communications, which Levy estimates contributed $15 million to ECI's Q3 revenue, and $1.5 million to its quarterly losses.

ECI's third-quarter results were slightly better than expected, Levey wrote, but visibility remains low and the management did not provide financial guidance, making it tough to predict future performance.

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Revenue expected to slide 6% in Q4 from previous quarter
Lehman did not change its revenue forecasts for ECI's fourth quarter, except to deduct the expected income from the Business Systems division, which was sold. The forecast, amended accordingly, is $245 million revenue for the fourth quarter, 6% less than in the same period last year.

The bank estimates loss per share at 16 cents for the fourth quarter. For the year 2001, the bank expects revenue of $1.07 billion, and loss per share of 21 cents.

Forecasts for 2002 are based on estimated 4% growth compared with 2001. But if the contribution of Business Systems is retroactively deducted, annual growth climbs to 10%, Levy estimates.